Winter is coming. The U.S. natgas market no longer cares. (updated)

Value Exchange International

01/12/2021 19:24

(Adds graphic; updates, recasts lead)
    Dec 1 (Reuters) - The U.S. natural gas market has stopped
worrying about winter.
    Just two months ago, U.S. gas futures were signaling alarm
that the nation may not have enough gas in storage to adequately
supply homes and businesses with heat throughout the winter.
With December's arrival, however, forecasts have shifted
dramatically, and the futures market shows it.
    Gas futures dropped to a three-month low on Wednesday, and
more notably, the famous market trade known as the "widow maker"
has hit a 20-month low, a signal that gas stockpiles are in good
shape for the next few months. 
    The "widow maker" trade, known as such because rapid changes
in price have knocked speculators out of business, refers to the
spread between gas contracts expiring in March and those
expiring in April. 
    March is considered the last winter contract, as it is the
last month when utilities are usually pulling gas out of storage
- while April is the first month when utilities start injecting
gas back into storage. A wide spread indicates a big need for
supply, while a small gap between the two means utilities think
there's enough gas in storage.
    The premium of gas futures for March over April  NGH22-J22 
fell to 28 cents per million British thermal units (mmBtu) on
Wednesday, the lowest since March 2020.
    That is a massive narrowing of the spread, which hit a
record $1.80 in early October when the markets worried about
tight U.S. gas supplies during the winter because stockpiles
were over 6% below normal and output was slipping.
    "It's one of the biggest futures meltdowns ever," said Bob
Yawger, director of energy futures at Mizuho in New York. 
    Now, however, U.S. inventories are just 2% below normal for
this time of year after mostly mild weather in October and
November allowed utilities to stockpile huge amounts of gas.
 EIA/GAS 
    In the past, a sharp move in the March-April spread has
squeezed funds caught on the wrong side of that trade.
Amaranth's hedge fund notably lost more than $6 billion on gas
futures in 2006 on such a trade. 
    Output in the U.S. Lower 48 states averaged a record 96.5
billion cubic feet per day (bcfd) in November, up from 94.2 bcfd
in October, according to data provider Refinitiv. That easily
topped the prior all-time monthly high of 95.4 bcfd in November
2019.
    The entire global energy complex collapsed over the past
week on concerns demand will fall as coronavirus cases rise,
causing a supply glut. Oil prices fell to their lowest since
August earlier on Wednesday. 

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UPDATE 1-U.S. natgas pares gains, still at 7-year high as global
prices soar     urn:newsml:reuters.com:*:nL1N2QU14C
Winter worries vanish, as the widow maker strikes again    https://tmsnrt.rs/31gWdYI
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 (Reporting by Scott DiSavino; Editing by Mark Porter and Leslie
Adler)
 ((scott.disavino@thomsonreuters.com; +1 332 219 1922; Reuters
Messaging: scott.disavino.thomsonreuters.com@reuters.net))
 
((For Refinitiv, formerly known as Thomson Reuters Supply Chain & Commodities Research (SC&CR), see: cpurl://apps.cp./cms/?pageid=usa-gas))